Get the authoritative comment on gold, miners, silver and bitcoin:

Bitcoin transactions have picked up which is always exciting. Network growth, perhaps, indirectly, drives the price and the weekly total number of transactions is back above one million; a milestone first hit over the summer.

What does it mean? Well, in late 2013 when the price touched $1,000, the number of weekly transactions was around 500,000. So whilst the price has fallen by three quarters (41,000 to $230), the transactions have doubled.

Normal bitcoin transactions pay a fee of 0.0001 btc or around 2 cents. Those that don’t can be data light or large in size and will still be prioritised, but you have to know what you are doing in order to send them. I don’t.

When trying to come up with valuation metrics for bitcoin, I opted for fees over transactions, because I felt they were a better representation of the size of the network. After all, no one would opt to pay fees they didn’t have to.

Looking at the weekly fees, they are currently around $50,000; hard cash that goes to the miners. Fees grew from $100 to $100,000 between 2011 and late 2013. No one can dispute that was a glorious era for bitcoin’s growth.

Since $1,000 bitcoin in late 2013, the price is down by three quarters whilst the fees have halved. When we measure a stock’s valuation, we might use a PE ratio – that is market cap / profits with units in years (it’s not actually a ratio). Applying this to bitcoin, the cap to weekly fees ratio (CFR) has fallen back below 7 having traded at a post 2011 average of 13.

Looking at this, bitcoin actually got cheaper between 2011 and 2013, because the price advance from $2.50, when fees were $60 a week, to a price of $50 with fees of $15,000. In other words, fees grew 300 times when bitcoin appreciated by 24 times in dollar terms. It therefore became cheaper as it rose; just like a surging dotcom stock but with genuine growth EXCEEDING speculation.

That changed in 2013 when fee growth was around 5x, whilst price moved by 20x to the mini-bubble peak of 2013. Price found it easy to surge because with a cap to fees ratio of just 3 in the summer, it was too low to start with. It rose to 13 at the $1,000 peak which no longer offered value.

The good news is that with the CFR below 7, there is some value reappearing. Furthermore, there are renewed signs of network growth from both transactions and fees. Finally, the price is above $200. If bitcoin was bust, it would be below $1. The truth is that it’s alive and kicking. People are building great applications and the future remains exciting.